Page 40 - NZPM Annual Report 2020

NZPM GROUP LIMITED
Notes to the Consolidated Financial Statements for the year ended 31 March 2020

Capital work in progress

Amounts expended on ‘capital work in progress’ are not capitalised until such time as the asset is placed in service and then is
transferred to property, plant and equipment or intangible assets and is depreciated or amortised from that date.

Impairment of tangible and intangible assets excluding goodwill
At each reporting date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is
any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset (or cash-generating unit) is
estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable
amount. An impairment loss is recognised immediately in profit or loss.

Lease accounting policy

The Group assesses whether a contract is or contains a lease at inception of the contract. The Group recognises a ROU asset and a
corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases and leases
of low-value assets. For these leases, the Group recognises the lease payments as an administration expense on a straight-line basis
over the term of the lease.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date,
discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Group uses its incremental borrowing
rate (IBR).

Lease payments included in the measurement of the lease liability comprise:
• fixed payments (including in-substance fixed payments), less any lease incentives;
• amounts expected to be payable by the lessee under residual value guarantees; and
• payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease.

The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the
effective interest method) and by reducing the carrying amount to reflect the lease payments made.

The Group remeasures the lease liability if:

• the lease term has changed or there is a change in the assessment of exercise of a purchase option, in which case the lease liability
is remeasured by discounting the revised lease payments using a revised discount rate;
• the lease payments change due to changes in an index or rate, in which case the lease liability is remeasured by discounting the
revised lease payments using the initial discount rate; or

• a lease contract is modified and lease modification is not accounted for as a separate lease, in which case the lease liability is
remeasured by discounting the revised lease payments using a revised discount rate.

The ROU assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the
commencement date and any initial direct costs less any lease incentives. They are subsequently measured at cost less accumulated
depreciation and impairment losses.

ROU assets are depreciated over the shorter period of lease term and useful life of the underlying asset. The estimated useful lives of
ROU assets are determined on the same basis as similar owned assets within property, plant and equipment. Depreciation starts at
the commencement date of the lease.
The Group applies NZ IAS 36 to determine whether a ROU asset is impaired and accounts for any identified loss under the same policy
adopted for property, plant and equipment.
Prior to the adoption of NZ IFRS 16 on 1 April 2019, these leases were accounted for as operating leases in accordance with NZ IAS 17.
Payments made under operating leases (net of any incentives received from the lessor) were charged to profit or loss on a straight line
basis over the period of the lease.

For short-term leases (lease term of 12 months or less) and leases of low-value assets, the Group has opted to recognise a lease
expense on a straight-line basis as permitted by NZ IFRS 16. This expense is presented within administration expenses in the income
statement.

The expected duration for each lease has been determined by including the minimum contract period plus any potential renewal
periods, based on a judgement, if available rights of renewals under lease arrangements will be exercised. The judgement includes
factors such as location, property size, relocation costs, lease and operating costs and regional growth prospects.

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NZPM GROUP LIMITED ANNUAL REPORT 2020